Small Business Line of Credit: How It Works and What It Costs in 2026

A small business line of credit gives you standing access to cash. You draw what you need, when you need it. You pay interest only on the balance you use, not the full limit.

That's the whole mechanism. The complexity is in who offers it, what it costs, and how you qualify.

This guide covers all three: lenders, rates, and the requirements you'll run into in 2026.

What a Small Business Line of Credit Actually Is

A line of credit is a revolving credit facility. "Revolving" is the key word. Unlike a term loan, the credit doesn't disappear once you use it.

Draw $10,000 from a $50,000 line, repay it, and your full $50,000 is available again. No new application, no new approval. The line simply resets as you pay it down.

Most small business lines run $10,000 to $250,000. Interest accrues daily on the outstanding balance. Many lenders also charge an annual fee or a draw fee on top of interest.

Where to Get One: Banks, Credit Unions, Online Lenders, and SBA

Four types of lenders dominate this market, and each fits a different profile.

Banks offer the lowest rates but the slowest approval and the strictest requirements. Online lenders flip that: fast money, higher cost, easier qualification.

Credit unions usually sit in the middle. They combine near-bank pricing with underwriting that's more willing to look past a thin file.

SBA CAPLine is a revolving line the SBA guarantees through a participating lender. It's built specifically for working capital, seasonal cycles, and government contract financing.

What It Actually Costs in 2026

Rate is only part of the cost. Fees change the real number more than most borrowers expect.

• Interest: Charged only on the drawn balance, not the full credit limit
• Annual fee: $150 to $500 on many bank and credit union lines
• Draw fee: Some lenders charge 1% to 3% each time you draw funds
• Unused line fee: A smaller charge, often 0.25% to 0.5%, on the undrawn portion
• Origination fee: A one-time setup charge, more common with online lenders

Always ask for the full fee schedule before comparing offers. A 9% line with draw fees can cost more than an 11% line with none. Fees, not just rate, decide the real cost.

Speed and easier qualification carry a real price.

Qualification Requirements by Lender Type

Every lender checks the same four things. They just set the bar at different heights.

Bank Line of Credit

• Revenue: $250K+ annually, usually with 2 years of tax returns
• Time in business: 2+ years
• Personal credit: 680+ FICO, 700+ preferred for unsecured lines
• Debt-service coverage: 1.25x or better

Credit Union Line of Credit

• Revenue: $100K+ for secured lines, $150K+ for unsecured
• Time in business: 12 to 24 months
• Personal credit: 640 to 660+
• Membership: Most require joining the credit union first

Online Lender Line of Credit

• Revenue: $3,000 to $5,000+ in monthly revenue, varies by lender
• Time in business: 6 to 12 months
• Personal credit: 600+, though 650+ gets meaningfully better pricing

Under a year in business? Most of the bank and credit union tiers above won't apply yet. See what's realistic in our guide to a business line of credit for startups.

Line of Credit vs. Term Loan vs. Business Credit Card

These three get confused constantly. Here's the actual distinction.

A term loan gives you a lump sum upfront with a fixed repayment schedule. It's built for a one-time purchase: equipment, a buildout, an acquisition.

A business credit card also revolves, but it's built for smaller, everyday purchases. Limits are typically lower, and rates run higher than a bank LOC.

A line of credit sits between them. It's sized for working capital, not a single purchase. It also costs less than a card once you're drawing real amounts.

For the full mechanical comparison, see our breakdown of a revolving line of credit vs. a term loan.

How to Apply: What Lenders Actually Ask For

1. Business bank statements. Usually 6 to 12 months, showing consistent deposit activity.
2. Tax returns. Personal and business, typically the last 2 years for banks.
3. Accounts receivable aging. Required for larger lines, especially at banks and for SBA CAPLine.
4. A profit and loss statement. Year-to-date, plus the prior full year.
5. Personal financial statement. Most small business lines still require a personal guarantee.

Gather these before you apply anywhere. A complete file moves faster through underwriting and signals that you run an organized business.

Common Mistakes That Slow Down Approval

Applying for Too Much on the First Line

A business generating $200,000 a year applying for a $150,000 line will likely get declined. The same business applying for $40,000 often gets approved. Build the relationship, then request an increase.

Skipping the Business Credit Check

Many owners apply without checking their business credit score first. A weak score triggers either denial or a much higher rate. Check it before you apply, not after you're declined.

Comparing APR Only, Ignoring Fees

As shown above, fees can flip which offer is actually cheaper. Always request the full fee schedule, not just the headline rate.

Frequently Asked Questions

What is a small business line of credit?

A revolving credit facility. You draw funds up to an approved limit, repay, and borrow again without reapplying. Interest applies only to the balance you use, not the full limit.

How much can a small business borrow on a line of credit?

Most small business lines run from $10,000 to $250,000. Online lenders often start lower, around $5,000. Banks and SBA CAPLine facilities can extend well past $1 million for established, high-revenue businesses.

What credit score do I need for a small business line of credit?

Banks typically want 680 or higher for an unsecured line. Credit unions and community banks often approve at 640 to 660. Online lenders will go as low as 600, though rates rise sharply below 650.

Is a line of credit the same as a business loan?

Both are business loans in the broad sense, but they work differently. A term loan gives you a lump sum upfront with a fixed repayment schedule. A line of credit gives you standing access to funds you draw as needed.

How fast can a small business get approved for a line of credit?

Online lenders can approve and fund a line in 1 to 3 business days. Credit unions typically take 1 to 2 weeks. Traditional banks and SBA-backed lines often take 3 to 6 weeks.